When you think of the American Dream, what comes to mind? A salaried career? A dependable retirement plan? A brand new car? The American Dream looks a little bit different for everyone, but one piece that is fairly consistent throughout the United States is home ownership. There’s just something about owning your own house that makes us feel settled and secure. But one major factor that holds people back is the initial down payment. So how do you save for your first home?
But to many folks currently renting in the Denver area, the prospect of making a down payment is so intimidating that it completely dashes their dreams of someday owning. Well, in this post we’ll help you make a plan for how to save for your first home so that you too can join the ranks of happy homeowners in Denver.
If you’re convinced that it’s time to stop renting and start saving for a house in Denver, the first step is to set yourself a deadline. A goal without a deadline is just a dream. So pick a date when you want to be ready to buy your first home.
Maybe a year from now. Maybe two years. Maybe six months. It really depends on your current savings and income.
Don’t stress over this date too much. You can always adjust it later based on changes to your income, expenses, and life in general. But without some sort of due date, you’re likely to continue living every day wishing you owned a home instead of taking actual steps towards buying one.
Many would-be homeowners are turned off by the myth that they need to make a 20% down payment on their new home. With the average value of homes in Denver hovering around $407,000 that would mean saving up more than $80,000!
But the good news is that lenders rarely require this much down, especially for first time home buyers. An FHA loan, for example, can be acquired with as little as 3.5% down (about $14,000 on an average Denver home).
Seems much more doable, right?
To set your financial goals, look at prices for the type of home you would like to buy. Talking to a professional Denver realtor, as well as your bank, can help you get a better idea of exactly how much home you can afford, and Smart Asset has a wonderful tool for calculating your down payment based on location, loan type, and home value.
Once you’ve got that down payment number figured out, simply divide it by the number of months until your deadline to determine your monthly savings goal. For example, let’s say you need $14,000 for a down payment and you’ve given yourself a due date 24 months from now. You’ll need to save approximately $600 per month to reach your goals.
If the monthly target looks too high, you can easily adjust your deadline in order to get it down to a number that makes sense for you.
So you’ve got a deadline and monthly savings goals. Now it’s time to meet them.
Here are a few easy ways to help you keep you on track when it comes to saving for a home.
If you’ve been flying from the seat of your pants (financially speaking) the first step is to sit down and create a budget that clearly dictates how much income you have coming in and where it’s all going every month.
You might notice that you don’t have quite enough room in the budget to devote as much as you would like to your down payment fund. In this case, you’ll either have to extend your deadline or find ways to pinch your pennies a bit.
If you can, find a way to automatically deposit money into a savings account dedicated to your home fund. Then you won’t have to rely as much on your own willpower to meet your financial goals.
If your employer pays via direct deposit, see if you can split every paycheck so that some of it goes directly to savings. Otherwise, check with your bank about scheduling monthly transfers from your checking to savings account.
Do you really need to buy that four dollar latte every morning on the way to work? If you cut it out, you could have about a thousand dollars extra saved by the end of the year. Scour your budget to look for negative spending patterns that you could transform into positive savings habits.
How often do you eat out? Is Netflix really worth it? Could you live without cable for a year? Are you prone to “retail therapy”?
All these little expenses add up fast, and cutting them back could make significant wiggle room in your budget for saving for a new home.
Don’t let the dread of a down payment keep you from achieving your American Dream. Now that you know the basics of how to save for your first home, all you’ve got to do is follow the process.
One way to keep yourself motivated is to learn more about the types of homes in your price range to get a clear picture of what you are aiming for. If you don’t know where to start, get in touch with Walden Novak for a free consultation. We’d love the chance to help you find your dream home.